The impact of the ESG disclosure on sell-side analysts? target prices: The new era post Paris agreements

We examine whether the ESG disclosure is a value driver for sell-side analysts, focusing on the largest 3000 US listed firms between 2012 and 2020. ESG represents Environmental factors, long-term Social factors, and Governance issues. These factors affect a community's long-term sus-tainability and serve to guide the broader financial markets, increasingly oriented towards sus-tainable investing. Specifically, we question whether firms exhibiting higher disclosure scores show higher target prices. Moreover, we investigate the impact of the 2015 Paris agreements addressing climate change on stock's evaluations. We find that: (1) analysts recognize a premium for firms more engaged in ESG transparency (2) before the Paris agreements this premium is mainly driven by Governance disclosure; (3) after the event this premium is also driven by Environmental disclosure. To the extent that we control for different model specifications, our findings suggest that ESG disclosure is a strategic tool for firms to create value.

Automated summary

We examine whether ESG disclosure is a value driver for sell-side analysts, focusing on the largest 3000 US listed firms between 2012 and 2020. ESG factors, including environmental, social, and governance issues, influence the long-term sustainability of a community and guide the increasingly sustainable-oriented financial markets. Our findings suggest that firms with higher ESG disclosure scores are associated with higher target prices, and the impact of the Paris agreements on stock evaluations is mainly driven by governance disclosure before the agreements and also by environmental disclosure after the event. Overall, our study indicates that ESG disclosure is a strategic tool for firms to create value.